New Regulation Requires Disclosure

August 12, 1989|By LYNN RYKOWSKI Staff Writer

Try this quiz:

A buyer makes an offer of $90,000 on a house for sale, but he tells the real estate agent showing him the house that he's willing to go as high as $95,000. The agent delivers the offer to the seller and tells the seller not to accept it because the buyer is willing to go as high as $95,000.

Did the agent violate the buyer's trust?

No.

The agent works for the seller, not the buyer, and is required by law to report all information pertinent to the sale to the seller. What could be more pertinent than the buyer's final offer?

If the agent had not told the seller that the buyer would go up another $5,000, he would risk losing his real estate license.

Of course, the buyer loses the $5,000. That would be the price of naively believing the agent was working for him.

A Virginia Real Estate Board regulation addressing that problem goes into effect Oct. 1. The regulation requires agents to disclose to a potential buyer that they represent the seller.

"It seems there have been some problems in residential situations - buyers being of the opinion that they're being represented by the real estate agent," said Elbert Smith, a member of the real estate board. "They're representing who they're being paid by."

The regulation, which was passed by the board in July, is part of a trend toward consumerism and disclosure in real estate. The National Association of Realtors has required disclosure in its standards of practice, prompting many states to write similar regulations.

"In the last 3 years about 30 states have passed new disclosure laws that begin to give buyers some information that they've never had before," said Barry Miller, executive director of Real Estate Buyers Agent Council in Denver. The trade association is made up of real estate agents who represent buyers, rather than sellers, in real estate transactions.

Current real estate laws require that the agent be fair and honest to the buyer, but that's all. If they're being paid by sellers, agents have to work for the sellers' interests. The regulation should help buyers, the board said. "I think the public has become more and more sophisticated about real estate in the past decade, but they still don't understand the fiduciary relationship between the agency and the seller; and agency disclosure should help the buyer," said Dottie Figg, former chairwoman of the real estate board.

According to the regulation, the agent must disclose whom he represents - whether that's the buyer or the seller - verbally at the earliest possible moment. Then the agent must make the disclosure in writing to the customer, again at the earliest possible moment.

The regulation will mean more paperwork for real estate agents.

"It's going to change how business is conducted but I don't think it will cause as much difficulty as people might think," said Smith of Smith & Co. Realtors in Norfolk.

Until now, disclosure has been voluntary and many agents do volunteer the information, said Al Abbitt, president of the Newport News-Hampton Board of Realtors.

"It clarifies things up front. From the agents' standpoint it adds to the paperwork involved, but we can handle it," he said.

Abbitt, senior vice president at Abbitt Realty in Newport News, said he did not think the problem is widespread in the area.

"I don't know of any major local problems," he said. "But if it'll help avoid problems, that's good."